House Passes Cross-Border Swaps Bill

Bill limiting CFTC authority on cross-borders swaps may pressure the agency to delay final action on application of derivatives rules to foreign entities.

House lawmakers passed legislation June 12 that would curb the authority of the U.S. Commodity Futures Trading Commission (CFTC) to oversee the $633 trillion global swaps market.

The bipartisan bill’s approval came as a majority of CFTC commissioners have signaled they want to delay final action on how new derivatives rules apply to foreign banks and the overseas affiliates of U.S. banks and hedge funds.

Chairman Gary Gensler insists the agency should take its final vote on the guidance by July 12, when the current deadline expires. While the bill is not expected to be introduced in the Senate, the House vote could increase pressure on Gensler to agree to a delay.

The legislation “will restore much-needed sanity to the rule writing of the extraterritorial application of U.S. swaps regulation,” said Representative Scott Garrett, a New Jersey Republican who sponsored the bill.

The CFTC will decide how to press forward after the Securities and Exchange Commission (SEC) last month outlined a different approach to regulating swaps that it oversees, which hews closer to industry viewpoints. The House bill would exempt foreign banks from CFTC rules if their home countries have broadly similar regulations and would force the CFTC and SEC to reconcile their approaches.

The House passed the bill 301 to 124, with 73 Democrats voting for it. The legislation isn’t expected to be considered by the Senate, Representative Jim Himes, a Connecticut Democrat on the House Financial Services Committee, said April 25. Himes voted for the bill, as did Representative Collin Peterson of Minnesota, the top Democrat on the committee that oversees the agency.

The legislation “is intended to send a message that Congress would like them to delay in order to achieve greater harmonization in the approach to cross-border regulation with the SEC,” said Annette L. Nazareth, a former SEC commissioner and Washington-based partner at Davis Polk & Wardwell.

President Barack Obama’s administration said in a June 11 statement that it opposes the bill, adding that its passage “would be premature and disruptive to the current and ongoing implementation of the reforms” required by Dodd-Frank.

The international reach of CFTC swap-trading requirements has been one of the most controversial elements of the Dodd-Frank Act. The CFTC became the predominant U.S. regulator of swaps under the 2010 law, while the SEC was assigned to write rules for equity and some credit-default swaps.

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